Voltaire said that paper money eventually returns to its intrinsic value, which is zero.
Since the 1980s US debt compared to the GDP (Gross Domestic Product) has changed from growing together to new unmanageable amounts of debt.
Instead of using the word price, we will use “exchange rate” for the value of currency.
There is a Chinese proverb that says “wisdom starts with calling things by their right name.”
Between 1980 and 2000. The dollar became the world's dominant currency…
Which was actually “smoke and mirrors” because it was all debt fueled.
Now debt is increasing with the dollar experiencing less purchasing power…..
Too many people bonds (some term this as deferred debt-a way for an organization to make money while creating an investment for others….some call it “deferred debt”) are worthless, because they are repaid with depreciating dollars.
The massive money printing that has occurred has added to currency devaluation. We will be talking about how pre-war and post-war currency valuations within countries caused many problems.
Fiat currencies are government created and manipulated currencies…like the dollar…
Leaders borrow so they don't have to raise taxes and create money, which increases the supply and decreases the value of the currency.
Rome is a good example of how the poor were stuck with worthless copper currencies because business owners hoarded their coins of gold and silver… Diocletian blamed greedy merchants for inflation. In 410 Rome felt the Visigoths.
Much of US people have become part of the debt demand situation….
As far as Social Security…..the worker to recipient ratio is 4:1….it will be 2:1 in the future as a result of lower birth rates and an aging population. Thus less financial strength in the Social Security system…Let us pray….
The recent subprime mortgage crisis…. extraordinary amounts of short-term interest rates and securitization of credit derivatives ……debt of US households soared.
Lots of people lost their assets…..still a lot of people made money feeding off of those trying to leverage the value of a home or the market growth…..the market fell because humans are not so historically good at making sure everyone wins….people were allowed to have loans at low interest rates, when the bank was having trouble….they raised their rates (cost of the loan….is the interest paid on the borrowed amount of money). People who knew of the housing market and financial market decline got involved in short selling ….(borrowing on the security, and speculating a decline in price)…..humans…GOD help us….but lets look on the bright side…..The word says that we should pray for treasures in heaven….we don’t have to seek blessings…only to seek GOD…
(1995-2001) U.S. companies acquired $3.5 trillion dollars in new liabilities (debt)…also in the past 10 years….derivatives (security/stock…value is based on the underlying asset…ex: mortgage loan security)….derivatives market went from $10 trillion dollars to $200 trillion dollars…if the global economy is experiencing challenges, then asset values all over the world are decreasing?….So now it’s time to LET GO AND LET GOD…GOD IS LOVE…..KEEP PLANTING THOSE SEEDS OF HOPE…
In the 1980s, the Debt: GDP ratio was 3:1 and 1990s…5:1….GDP is a measure of productivity….
The US is the world's number one debtor nation. U.S. trade deficits with China, Japan and the European Union and companies are outsourcing to save money, which is continuing to reduce productivity. The general lifestyle of US consumers puts a strain on finances, and is now subject to great amounts of debt. Commercial consciousness feeds on this entertainment-based lifestyle. KEEP HOPE ALIVE….PURSUE KNOWLEDGE AS FUN….YIPEE!!!
In Europe….The Maastricht Treaty introduced the Euro which also said that no country could have a debt:GDP deficit exceeding 3%...The treaty did not specify, however, how such fiscal strength would occur…..Well…the unified currency was supposed to lead to productivity…..but humans will be humans…..like Diocletian said…”Hey, whose hoarding all the gold man?”…Lots of love…..
There's an interesting term Reflation can happen by lowering interest rates and cutting taxes…..but man o man…..no mas debt por-favor…..too many of us…and school should be free….
“Sound money” involves an asset that’s value fluctuations tend to even out over time. Gold is a scarce resource as opposed to dollars which are not weighed as gold or silver is….Dollars for a long time were supposed to be “pegged” to gold….in order to achieve some sort of economic stability in the world….Traditionally, the amount of gold in the central bank established the amount of money that could be in supply…as we will discuss…..wars have wrecked havoc on things….because money gets printed to pay for all the nonsense…..
One love…
Why has gold been so valuable all this time…..many uses…and has been regarded as money since 600 BC in Turkey…(then Greeks, Persians and Romans)…
Our human belief in gold as money is what perpetuates this condition…hmm…. Gold is in limited supply and not controlled by the government. (In China and various times in the U.S. gold was not allowed to be held by citizens…maybe to protect against what Diocletian was upset about…Times they are a changin’ )?...anyway….
Lots of love…
In the 1500’s, Cortez/Pizarro- destroyed cultures seeking treasures of gold (scarce resource)….GOD wants us to seeks treasures in heaven….righteous things….fruits of the spirit…kindness to others…patience…love does not push others….love is kind….Take care….
1690’s – The Bank of England (thought gold/silver coins were too clunky) and issued paper notes instead …IOU’s’…once again authorities printed too much paper…geez….
…humans… what can ya do?
1699 – Sir Isaac Newton was named director of the mint…and thus the famous classic “gold standard” was born…Linking gold to currency.
The Spanish dollar was the unofficial dollar of the colonies…to make change it was cut into pieces…thus…”pieces of eight” and “two bits”…
Sir Isaac Newton knew the risks of money substitutes…as well as the framers of the Constitution.
1828 – “The Free Banking Era” – Banks began issuing their own paper currency against precious metals….dozens of private currencies….the further from the banks territories…the more fluctuating values…the civil war ended free banking…
1861 – Lincoln began issuing paper currency (was not in Constitutional power)
“Greenback” – not pegged to gold or silver stored in the vaults…the Civil War used up the precious metals and the Greenback value dropped.
1863 – National Banking Act – National banking system creating a single currency….10% tax for private bank currencies…
Post U.S. Civil War – “bimetallic standard” – gold measured in terms of silver.
Then the Comstock load in Nevada – silver supply surged.
Silver’s purchasing power declined…
Sherman Silver Purchase Act and repeal (for Government to buy silver)
1900 – “Monometallic” – classical Gold Standard – as Britain, Germany and others
(This was the most successful system so far)
Deficit – when a country is buying more than the other (from each other)
With the Gold Standard – deficits between countries meant gold would transfer from one country to another….thus reduction of money supply and credit in the deficit holding country (currency peg to central bank gold reserve). The world also hoped that the surplus trading countries would be buying more foreign goods when deficits occur, but as we know….huge trade deficits and surpluses continue….we are all human…and should help each other….”clunck”….hangin’ up the phone on that one….
The business cycle existed still because of the fractional reserve system.
“Boom and bust” still occurs wherever humans are at, because businesses grow
And prosper, and other businesses bust….it depends on what’s going on in the market…
It could be any market….supply and demand is the essence of any market….the grocery store business or financial markets….for example…if a particular currency is being bought by a central bank….price will go up….this would mean that the market is on the demand side of things… God bless….. Let’s keep planting those seeds of hope…
A bit of history on banking
100% reserve banking…the customer would leave the gold…and the bank would leave a fee for holding it. Supply grows slowly, as productivity increases.
-Prices are expected to fall – “deflation – called a “sound money lens”
If no war, things can be steady. Slow n steady. But if war occurs, it brings chaos to financial systems…because leaders tend to print money…the over supply decreases the value of the currency.
1600’s – Italian and English goldsmiths found they could lend gold for a profit.
(Since only a few customers wanted their gold back)
The goldsmiths were able to pay depositors interest on their gold.
1800’s – fractional reserve – “flexible money supply”
Good times – credit grows faster.
1890 to 1912 - most of the trading world has joined the gold standard.
Similar to the US, approximately 40% of British investments were directed towards other countries.
Currencies were experiencing deflation, low interest rates close to 2% to 3%
(“Sound money”.)
As economies were growing, so did global efficiency and productivity.
Various government ambitions to grow were harnessed due to the gold standard, and this caused ongoing adjustments according to how much gold reserve in central bank vaults existed.
By the 1800s, many pressures existed in world governments.
In 1883 Otto von Bismarck, the German Chancellor introduced Social Security as did New Zealand, Austria-Hungary Norway Sweden Italy and the UK. (Not the US, however, which created the Federal Reserve system in 1913 to get control of the banking sector.)
In 1914, the gold standard was still going steady, until conflict erupted in the world. As a result, lots of currency was printed and inflation began.
In 1925 after the Great War, Britain decided to return to their semi-gold standard, however, and there was trouble due to the great amount of paper money that was circulating. The decision was to set the pound to the prewar value of per ounce of gold, and this created an imbalance, because lots of currency was printed and put into the economic system due to the war. The story is that people were making money by converting their pounds into gold. Gold was equal to the same amount of currency as before the war. For most though, more money supply and inflation meant greater difficulty to repay debt (less purchasing power of the currency).
In the US (with the fractional reserve system---currency reserve maintained in bank set the amount of money able to lend). Credit expansion occurred which eventually led to the 1929 crash. A good way to view this is that people living beyond their means (excessive economic activity), and people were bailing out when things went wrong in the economy.
In the US.... Leaders have tried to cut taxes and encourage consumer spending, however, since the 80s. …. and too much productivity has been debt fueled. Thus many consumers have taken on debt, and this is how the economy was growing. So the productivity in the GDP was smoke and mirrors. (not really productivity…because of all the debt that existed).
According to the author, inflation and debasement are very different terms.
Inflation is when there's an oversupply of money, and debasement is when the currency loses its intrinsic value.
An interesting way of understanding the value of currency, is remembering that the value of a printed coin reduces when the precious metal is reduced, and similarly the currency values reduce when the gold reserve is reduced.
So, the amount of gold in the central vaults of a government has an effect on the value of the country's currency.
Gold and silver were America's first form of currency. The Constitution specifically states that it exists to help limit the government's ability to manipulate money…. the framers of the Constitution knew about the troubles that existed with currencies, having been oppressed by the former government, and wanted the people to have sound money. Sound money at this time was gold and silver. It helps to remember that the framers of the Constitution knew their history, and probably knew what happened in Rome with all of the copper coins being chopped up, and in addition, the value of the Spanish dollar value fluctuations (in the colonies) that were known as pieces of eight and two bits.
1930s - in Britain and the US, people were taking their money and converting it back into gold. Many banks could not stay in business. As a result, prices fell, and again debts were difficult to pay off. FDR decided to take the dollar off the gold standard, while also prohibiting people from hoarding gold and ordered the gold to banks in the Federal Reserve System. This sounds a bit like maybe what Diocletian in Rome should've done. (With all the merchants hoarding the gold and silver coins.)
Once the gold started to make its way back into the Federal Reserve System. Gold was valued at $20.67 and ounce. After this the gold exchange rate was raised to $35 an ounce.
After World War II
U.S. and Europe leaders chose the gold standard again.
(Bretton Woods, New Jersey)
At this time, many countries linked their currency to the dollar, which eventually was a problem because the US government began printing lots of currency because of the wars in Korea and Vietnam (Cold war era).
In early 1970’s people were trying to convert dollars to gold, and eventually Nixon took dollar off the gold standard (1973).
The dollar was devalued further as the price of gold increased.
As it still is today, gold and the Swiss franc were precious.
Anytime pressures on liberty occur in the world, economies become less of a focus.
Interesting thought about Gold as an investment…the world demand for gold is 4,000 tons, and mines yield approximately 2,500 tons)…1,500 tons less than needed….thus gold will remain a solid investment…